Essay on the Economic Cooperation between Asian Counties

It is held by many economists that, as a factor in the development of Asian countries, a regional common market is economically far superior to the relatively small national market sheltered behind a protectionist tariff wall. Moreover, economies of scale, both internal and external, would be achieved with the enlargement of the market.

Economists like Dr. D. T. Lakdawala, however, are in great hopes on the development of Asian trade under the auspicious of the Economic Commission for Asia and the Far East (ECAFE), covering South, South-east and East-Asian regions. Dr. Lakdawala opines that the scope for the expansion of an intra-regional trade of ECAFE is large, with countries like Japan and India belonging to this group.

It is interesting to note in this context that India’s export to ECAFE region amounts to roughly a sixth of her total exports. Dr. Lakdawala further holds that the high income elasticity of demand for each other’s products and their preferences for low-priced goods and simple capital goods should stimulate intra-regional trade of the ECAFE countries.

Further, it is also held that, for the industrial development and rapid growth of the backward Asian countries, there is great need for encouragement of a pattern of investment which would not only ensure sustained growth of industries producing for their domestic markets, but also take advantage of favourable opportunities of producing for the export markets that may be created under the ECAFE trade expansion programmes or through any other suitable form of Asian economic cooperation.

Protagonists of Asian economic cooperation argue that, the regional integration in these relatively backward blocs will not only imply a broadening of the regional market but also a reduction (in a relative sense) in these countries’ dependence on trade with the western world of developed nations. Especially in the field of consumer goods, the dependence of Asian countries on the western world will decrease on account of inter-country substitution and the broadened regional market.

This will release more foreign exchange resources for imports of essential developmental goods from the western world. Further, the creation of a broad regional market will lead these countries to concentrate on specialised production individually, which will establish a more rational pattern of trade and production.

On the other hand, however, it is held by many that a common market or regional integration is not a feasible proposition for the whole Asian region under the existing circumstances. It has been argued that:

1. The Asian countries are not economically unified. They are typically more competitive than complementary. Thus, their competitive interests make it difficult for them to form a community or a customs union.

2. With their wide differences in governmental structure and political temper, Asian countries lack political basis for an economic union (like that of the “Inner Six” of ECM).

3. Further, formation of a common market in the Asian region (excluding Japan) will not result in any significant economic gain when its imports have to grow faster than exports as a consequence of which Asian countries in general suffer from a chronic disequilibrium in the balance of payments. Moreover, their terms of trade have always been unfavourable vis-a-vis the western nations, owing to the existing composition of the former’s foreign trade.

On an analysis of the Asian region’s foreign trade in relation to its income, it is found that the region’s dependence on foreign trade in general is relatively high, and more than three-fourths of the total exports of the region consist of primary products, while half of its total imports is of capital^ goods. About a third of the region’s foreign trade is intra-regional, about a fourth is with Western Europe and a fifth with the U.S.

In such a situation, customs union will not produce any favourable effect since trade creation will not be much efficient, as it will be harmed by the trade diversion effect. Also, Asia’s trade structure does not reveal a greater degree of mutual complementarity than that of Latin America. Furthermore, in the case of the Asian region, there does not seem to be such scope for trade creation, since, much of the production is governed by the pattern of natural resources,

While its manufacturing industry is in an infant stage; hence the scope for eliminating high-co manufactures within the region is not so great. On the other hand, there might be a considerable degree of trade diversion, the form of replacement of high-cost production within the region for low- cost production outside it. This would certainly be uneconomical and wasteful.

4. Further, there is the difficult problem of selecting the right industries for protection an encouragement in different Asian countries. All Asian countries do not need the same external tariff support or import restrictions, because they are in varying phases of development and have different economic problems. As such, the formation of a customs union as a preliminary step for an economic cooperation among Asian countries is not a very practicable proposition.

Moreover, a common external tariff, if adopted in the whole of Asian region, might encourage the formation, among the countries, of uneconomic, and therefore, undesirable industries.

5. Further, the relatively low economic growth and lack of industrialisation and diversification of economic activities, policies, political differences and biases will pose great obstacles in the way of expansion of trade among Asian countries.

In short, in view of vast population in the region, its cultural, economic and political diversities, its past and present, it is very difficult to work out a successful customs union or a free-trade area in Asia.

The less-developed countries of the Asian region have, therefore, been warned against being hypnotised by the success of the EEC. The regional co-operation of western European countries had produced beneficial results, because these countries were industrially advanced, and the economic integration helped them in further division of labour and specialisation, standardisation and reallocation of resources. But, for the poor and primary producing Asian countries, there does not exist even a remote chance of achieving any gains through an economic integration.

It may, therefore, be suggested that these and other LDC countries should instead explore possibilities of effecting coordination in economic development programming, projection and execution. Instead of wasting their energies and efforts on tariff and other commercial aspects of foreign trade, these backward countries should concentrate on mutual cooperation for development and upliftment. And, once economic advancement has been attained, a full-fledged economic union through a common market may follow. But in the present juncture, there is great risk of premature integration of LDC in the Asian region or elsewhere.

Obviously, the welding together of two or more unstable economies makes the task of achieving stability and growth more difficult. A monetary imbalance and inconvertibility in these countries is not very compatible with a regional free trade policy. It requires the creation of some sophisticated monetary device like that of European Payments Union (EPU).

Moreover, by forming a customs union, these developing or underdeveloped countries may restrict the advantages that trade with developed nations would bring them. Further, most of these underdeveloped countries (in Asia and elsewhere) swear by the ideals of socialism and resort to severe governmental restrictions and controls, which necessarily implies that their customs union should be accompanied not only by the integration of their national economic programmes but also methods of intervention. Unless this is achieved, no regional cooperation will succeed. And to achieve this is next to impossible under the existing circumstances.

Despite all these difficulties, we may, however, put that initially some steps may be taken to have regional economic cooperation to some degree at least in LDCs or related regions, especially in Asian countries. This is the need of the hour, as has become evident from the deliberations in the recently held UNCTAD-III meeting. A sort of regional integration of LDCs would definitely help in solving many of their unsolved problems at international level.

Difficulties may creep in while initiating steps for such a regional co-operation, but where there are difficulties, there should be solutions, too. Even though, such steps may result in failures, it is better to make attempts in some form or the other rather than not at all. Because, no a priori judgment should be accepted as true without experimentation.